5.2 - Profitability for Shareholders

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基础设施建设的金融和投资

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Università Bocconi

基础设施建设的金融和投资

620 个评分

Learn how debt and equity can be used to finance infrastructure investments and how investors approach infrastructure investments! According to the OECD, the global infrastructure investment requirement by 2030 for transport, electricity generation, transmission & distribution, and water & telecommunications totals to 71 trillion dollars. This figure represents about 3.5% of the annual World GDP from 2007 to 2030. The European Commission estimated, that by 2020, Europe will need between 1.5 - 2 trillion Euros in infrastructure investments. Between 2011 and 2020, about 500 billion Euros will be required for the implementation of the Trans-European Transport Network (TEN-T) program, 400 billion Euros for Energy distribution networks and smart grids, 200 billion Euros on Energy transmission networks and storage, and 500 billion Euros for the upgrade and construction of new power plants. An additional 38 - 58 billion Euros and 181 - 268 billion Euros in capital investment will be needed to achieve the targets set by the European Commission for broadband diffusion. Traditionally investments in infrastructure were financed using public sources. However, severe budget constraints and inefficient management of infrastructure by public entities have led to an increased involvement of private investors in the business. The course focuses on how private investors approach infrastructure projects from the standpoint of equity, debt, and hybrid instruments. The course concentrates on the practical aspects of project finance: the most frequently used financial techniques for infrastructure investments. The repeated use of real life examples and case studies will allow students to link the theoretical background to actual business practices. In the end of the course, students will be capable of analyzing a complex transaction, identifying the key elements of a deal, and suggesting proper solutions for deal structuring from a financial advisor's perspective. Course Format The course will consist of lecture videos, readings, and talks given by guest speakers. Although we do hope you will attend the entire course, it is possible to just focus on single topics. Suggested Readings The course is designed to be self-contained, there are no obligatory readings that must be acquired outside of the course. For students interested in additional study material, you may refer to: • Gatti Stefano, "Project Finance in theory and practice", Academic Press, 2nd edition, 2012.

从本节课中

The Financial Sustainability of an Infrastructure Project

Module 5 covers whether an infrastructure project is doable or not from the dual perspective of the shareholders and lenders. We will answer this question in the module by analyzing the criteria for measuring the profitability for project sponsors and lenders. We will also look at measurements of financial sustainability and the key role played by cover ratios in disciplining the performance of the SPV.

5.1 - Introduction3:16

5.2 - Profitability for Shareholders7:39

5.3 - Profitability for Creditors10:23

5.4 - From Profitability to Financial Sustainability9:20

5.5 - Cover Ratios15:29

5.6 - Cover Ratio Calculation3:39

5.7 - Takeaways2:33

与讲师见面

Stefano Gatti
Director
Full Time MBA, SDA Bocconi School of Management

Hello guys.

Today I would like to focus our attention on the estimation of the profitability of

an infrastructure finance deal from the perspective of shareholders.

This is particularly important because shareholders want to know exactly how

much they can get out of a project finance transaction.

And for this point of view, we have to exactly identify

a measure that is sufficiently reliable from the point of a

shareholder in order to give it some hints in terms of

how much exactly it can get out of this particular project.

Well professor, we have seen how to

set up the financial forecast for the transaction.

Then, from the point of the view of the shareholders what are

the most relevant issues that have to be taken into account for the evaluation?

Mm-hm.

You know that in corporate finance and in capital budgeting theory the

most important profitability measures that you can apply to whatever kind of project

are represented by either a net present value calculation or an internal rate of

return calculation, and they are indifferent if

you are taking into account one single project.

In the world of project finance, IRR is being

used very frequently and has emerged as the most

widespread used measure for calculating the

profitability of these particular kinds of transactions.

So if IRR becomes the relevant measure that we want to

calculate we must put ourselves in the shoes of a shareholder

that must exactly, it identified the relevant cash flows that

must be taken into account for the calculation of this measure.

If we go back to last week, we set up a capital budgeting exercise and we ended

up with two key elements: the budget of the

construction phase and the budget of the operational phase.

During the construction phase the relevant

flows for shareholders are the equity contributions

that shareholders provide to the special purpose vehicle

as long as the construction goes on.

So the key input for the calculation

will be the working progress schedule of payment.

And the debt/equity ratio that we have decided

to use in order to finance the project.

So, during the construction phase the financial analyst must take into

consideration the contributions that the shareholders

have provided throughout the construction phase.

During the operational phase, you will certainly remember, that last week we

ended up our cashflow statement with the calculation of the free

cashflow to shareholders of free cashflow to project sponsors.

These cashflows are potentially the relevant flows that the

sponsors can get throughout the operational life.

In reality, I suggest because there are

different kinds of ways analysts, to calculate

internal rate of return for project sponsor

shareholders I personally suggest using dividends

rather than free cash flow to project sponsors

and there is a subtle difference between the two.

In general, in the very early years of the operational phase, creditors do not

allow project shareholders to withdraw all the

free cash flow available to project sponsors.

They prefer to keep a portion of the cash inside the vehicle

in order to overcome future potential difficulties that the project could face.

If this is the case, it is obvious that the value of dividends that you can get

is always lower than the level of free cash flow available for shareholders.

For this reason in corporate finance you must take

into account flows of cash not potential flows of cash.

Summing up, during the construction take the contributions of equity.

During the operational phase, take the stream of

dividends from the beginning of the operational phase

down to the end.

Mix up the two and apply the standard IRR calculation.

You will get a measure of IRR equity

which is the basic criteria that shareholders use

in order to assess the profitability, and of course, they will say go on

if this IRR is higher than the cost of funding

of a shareholder; and they would say no

if this value is below a given

threshold typically represented by the cost of funding.

Well professor, we have seen that the sponsor can play more than one role.

I was thinking, does this mutual comment change if

the sponsor is, at the same time, the counterparty sponsor?

That is a good question.

The answer is yes,

it changes.

Not from the point of view of the criteria,

the criteria always remains the internal rate of return.

So from this point of view, the measurement remains exactly unaffected.

However, the relevant flows, that we must take into account, change.

Take for example the case of, I don't know, you are a big

contractor, and at the same time, you are also shareholder of the special purpose vehicle.

So, arguably, what you will do is you

will provide equity because you want to get dividends,

but you will also provide all the

facilities and construction during the construction phase.

And for this kind of task you will be paid, so you will get a margin.

Also as a contractor of the construction phase.

So from this point of view, the correct calculation of IRR for this specific

sponsor should include, not only the equity contribution during construction,

not only the dividend payments during the operational phase,

but also, the profit margin that this contractor

is able to extract from this particular infrastructure

during the construction phase, because it has paid for

a service that is provided to the SPV.

And it could go on and on with other examples.

If you are a supplier, you would also consider

all the profit margins that you can get in

providing raw materials to the SPV. I could consider

the case of an operation on a maintenance agent.

You could add to the flow of dividends all the

stream of O&M fees that you will get from the project.

And so, from this point of view Gim, the calculation remains exactly the same.

But the input for calculation is the base calculation for a pure financial sponsor.

And, on top of that every other additional cash flow that you can get

out of the project because you are one of the counter parties of the SPV itself.

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